Target Revised to $58: New Initiatives, Online Sales Drive Growth

Target (NYSE:TGT) recently reported impressive Q1 results with about 6% increase in sales as compared to Q1 2011. The early warm weather and appealing spring fashions drove traffic and sales in Q1. The management has raised earnings guidance for fiscal 2012. Discount programs like 5% Rewards, REDcard Free Shipping and Pharmacy Rewards programs are proving very effective in driving incremental sales for Target. Target mainly competes with Wal-Mart (NYSE:WMT) and other retailers like Best Buy (NYSE:BBY), Macy’s (NYSE:M), Sears (NASDAQ:SHLD), and Costco (NASDAQ:COST).

We have a revised price estimate of $57.60 for Target stock, which is roughly 3% ahead the current market price. We have made a few revisions in our model related to Target’s current net cash/debt position, capex estimates and average revenue per square feet in accordance with the recently released earnings release.

See our complete analysis for Target here

Focus on initiatives to drive traffic

• Beginning this fall, Target plans to rebrand its Target Home brand as Threshold. Target Home is Target’s largest owned brand. In past, it re-branded its Room Essentials brand which later helped in driving sales. Target plans to relaunch Threshold with an assortment of entertaining essentials. It also plans to extend Threshold across its entire home assortment in 2013.
• Target’s partnerships have played a major role in driving traffic to its stores and has successfully differentiated itself through its merchandise assortments. It recently added, The Shops, a new merchandising program that features products from five boutique shops across the country.
• Target has partnered with Grammy winner Norah Jones to sell a deluxe edition of her new album, Little Broken Hearts.

Focus on developing online capabilities

• Target has been focusing resources to develop its online capabilities. It is presently strengthening its current web platform to enhance customer experience. The management asserted that it is working towards creating a platform that would integrate its  stores, online mobile platforms and social media.

International expansion plans

• Target is leaving no stone unturned to make its first international foray a success. It expects to open 125 to 135 Target stores in Canada by 2014.
• Target is actively building its team in Canada and presently developing the required IT and distribution infrastructures for servicing its stores in Canada.

We believe Target is taking all necessary steps to ensure that it stays ahead in the intensely competitive retail industry. Its working very strategically on all fronts, be it partnerships to drive differentiated product assortments or efforts to drive online sales.

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